- Moody’s now sees ‘negative’ outlook for grocery chain
- Third-quarter earnings fell by more than half
- Willis Stein took company public in February 2012
Moody’s cut the outlook on $795 million of Roundy’s rated debt on Nov. 13 to “negative” from “stable.” The credit agency cited uncertainty regarding the company’s ability to improve operating performance and credit metrics.
“We expect increasing competition in Roundy’s core markets to continue to pressure its top line and margins in the next 12 months. This could cause further deterioration in the company’s financial leverage, which is already weak for the B2 rating category,” said Mickey Chadha, a senior analyst at Moody’s, in a statement explaining the action.
In Moody’s rating system, obligations rated B are considered speculative and are subject to high credit risk. Moody’s also affirmed the B1 rating of the company’s $125 million first-lien revolving credit facility and its $667 million first-lien term loan. The company’s shares were down 6 percent following the Moody’s report.
Moody’s acted after Roundy’s reported a drop in profit in the third quarter. On Nov. 7, the company reported that its net income fell by more than half, to $3.8 million from $7.9 million in the same quarter a year earlier, while net sales grew 1.1 percent to $984.2 million. Robert Mariano, chairman, president and chief executive officer, attributed the results to a weak economy and expansions by competitors. Roundy’s operates 163 grocery stores and 101 pharmacies in Wisconsin, Minnesota and Illinois.
Roundy’s, based in Milwaukee, went public in February 2012, but Willis Stein still owns nearly a third of the company’s shares, Roundy’s reported in March. Willis Stein acquired the store chain in April 2002 and recapped the company at least twice, including a $270 million dividend in 2006 and another for $75 million in 2009, according to sister website peHUB. The firm has long been in the black on the deal, peHUB reported; Willis Stein invested just $225 million in the company through its Willis Stein & Partners III LP, a $1.8 billion fund that closed in 2000.
The firm was not so successful with other investments from the fund, notably taking a $345 million loss on technology magazine publisher Ziff Davis, which filed for bankruptcy protection in March 2008. A group of investors including Vision Capital, PineBridge Investments and Landmark Partners paid $220 million in August 2012 to buy the fund’s remaining assets, which were valued at the time at $300 million. The fund received an additional five years to return capital, and executives of Vision Capital joined Willis Stein in the management of the fund.
Executives of Willis Stein did not respond by deadline to requests for comment.